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Weakening Description Invariance to Deal with Framing Effects: An Axiomatic Approach

Author

Listed:
  • Dino Borie

    (University of Nice Sophia Antipolis
    GREDEG CNRS)

  • Dorian Jullien

    (University of Nice Sophia Antipolis
    GREDEG CNRS)

Abstract

The goal of this paper is to provide an axiomatic framework that can account for framing effects violating the so-called axiom of description invariance. Most existing discussions of the latter in economics are made with respect to Kahneman and Tversky's 1980s work. However, other psychologists have, over the last twenty-five years or so, progressively refined the conditions under which framing effects violating description invariance hold. Our axiomatic framework is motivated by these developments. We argue that description invariance is an implicit axiom of the standard model primarily on the formal structure of its object of choice and only derivatively on the formal structure of preferences. The conditions under which it is violated in psychologists' experiments are a useful guide to make it formally explicit. Furthermore, they also provide normative justifications for weakening it. We propose a way to do so in a mathematically tractable fashion that can account for all the variations in framing effects for which prospect theory cannot (at least straightforwardly) account for.

Suggested Citation

  • Dino Borie & Dorian Jullien, 2016. "Weakening Description Invariance to Deal with Framing Effects: An Axiomatic Approach," GREDEG Working Papers 2016-14, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2016-14
    as

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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2016-14.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Rabin, Matthew, 2002. "A perspective on psychology and economics," European Economic Review, Elsevier, vol. 46(4-5), pages 657-685, May.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 341-374.
    4. Sugden, Robert, 1991. "Rational Choice: A Survey of Contributions from Economics and Philosophy," Economic Journal, Royal Economic Society, vol. 101(407), pages 751-785, July.
    5. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    6. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    7. Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, vol. 75(1), pages 264-272, March.
    8. repec:cup:apsrev:v:82:y:1988:i:03:p:719-736_19 is not listed on IDEAS
    9. Michael Ryan, 2004. "Framing, Switching and Preference Reversals," Theory and Decision, Springer, vol. 57(3), pages 181-211, November.
    10. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages 251-278, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Description invariance; Framing effect; Extensionality; Consequentialism; Description-dependence;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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